How might the proposed bar on new evictions impact landlords and tenants?

Along with the majority of the world, landlords and tenants are being affected by the outbreak of Covid-19 in both the commercial and private sectors.

The contents of the recent press release from the Ministry of Housing, Communities & Local Government (https://www.gov.uk/government/news/complete-ban-on-evictions-and-additional-protection-for-renters) has been widely publicised; it states that no fresh proceedings to evict tenants can be commenced for three months and landlords are to be granted a three month mortgage payment holiday. Although the legislation enshrining these proposals has yet to be enacted, and the way in which the law will actually function for landlords and tenants is still unclear, we can glean a lot from the press release and the draft Coronavirus Bill.

The inference from the government’s press release appears to be that the new rules barring fresh possession proceedings will apply to residential lettings only: there are references to “private or social accommodation”, “people’s homes” and various bodies associated with residential letting. Certainly, therefore the press release refers to residential lettings – not commercial.

In terms of residential lettings, it is extremely unlikely that either the Housing Act 1988 or the Rent Act 1977 will be repealed. These are the two pieces of legislation which govern the vast majority of residential lettings in England and Wales. Both provide specific periods of time which landlords are obliged to comply with when serving notices threatening possession proceedings against tenants. Many of these, but not all, relate to the failure to pay rent.

Based on the draft Bill, it is far more likely that landlords will still be able to serve notice on tenants seeking possession, and that notice periods will simply be extended to three months across the board. Landlords will be prevented from commencing proceedings until three months from the date of service of the notice.

Even if a “three month bar” on new possession proceedings is, in reality, more of a three month delay or moratorium, the proposed mortgage holiday in favour of landlords is clearly aimed to incentivise landlords to delay the commencement of proceedings for longer as it ameliorates any losses they might ordinarily suffer through non-payment of rent. The landlord’s losses would be mitigated in the short term by the proposed mortgage holiday. The government’s press release indicates that mortgage companies will be similarly prevented from commencing proceedings to repossess buy-to-let properties from landlords who have been unable to pay their mortgage owing to lack of rental income (or indeed loss of other income).

It must be borne in mind though that the reference to “mortgage holidays” suggests that mortgage arrears must ultimately be repaid to lenders. Landlords are unlikely therefore to overlook non-payment of rent by tenants in the long term; rent arrears would likely need to be repaid. Effectively, landlords and mortgage lenders will be required to communicate and work together to agree a revised payment plan.

Judges are already empowered to impose payment plans on parties to litigation and this power would likely be unaffected by the present situation. Any procedural “gaps” in the government’s proposals or emergency legislation may be filled by new obligations provided within the Civil Procedure Rules (which govern court proceedings in England and Wales) which will encourage parties to work together to negotiate repayment plans. This may provide, for example, a 28 day period after a statutory notice period has determined during which the parties must seek to agree settlement terms.

It should be borne in mind though that there are two types of possession proceedings in England and Wales: accelerated possession proceedings and standard possession proceedings. Accelerated proceedings (often issued under section 21 of the Housing Act 1988) do not enable recovery of rent – the process is geared purely at recovering possession of property. In contrast, standard possession proceedings (usually following service of a section 8 notice for non-payment of rent) do provide for a money claim being brought at the same time as possession proceedings.

As such, the proposed new measures impact on accelerated possession proceedings will likely be limited to a delay on the commencement of proceedings and will not inherently oblige tenants to pay rent unless a landlord brings a separate money claim after the event. Whilst the situation with standard possession proceedings looks to be similar (proceedings cannot be commenced unless three months’ notice is provided), the impact is more far ranging. Aside from non-payment of rent, Landlords may previously have sought possession of a property for a tenant’s breach of rental agreement terms – for example, for a tenant’s use of the property for non-residential use, or for damage to the property. These proceedings will still be affected by longer notice periods, even though there may be no “issue” relating to non-payment of rent caused by the Covid-19 outbreak.

A three-month notice period before possession proceedings and a three-month mortgage holiday will provide peace of mind to residential tenants and landlords alike. Also, it appears that the legal operations may be simpler than many are expecting. But the likely inclusion of all possession proceedings (even those with previously short notice periods where there is not an underlying financial issue caused by Covid-19) also assists in achieving a greater social aim than providing peace of mind and financial security: the aim of reducing unnecessary movement of persons, promoting social distancing and limiting the further spread of Covid-19 wherever possible.

The Bill also contains helpful guidance on the situation relating to business tenancies in England and Wales which will come as welcome news to businesses, both large and small which shall be covered in a separate note.

If you have any questions or concerns relating to your position as either a landlord or tenant, please contact a member of the Blanchards Bailey team.